Debt is comprised of a household's total liabilities (a mortgage, personal or student loans, credit cards, etc.). Some, such as a mortgage loan, are considered good debt, or an investment. Others, such as a car or credit cards purchases, decrease in value over time.
Julie Pombert, Senior manager, Payments Solution at National Bank, explains that people often go into debt because they don’t fully understand balanced financial management. According to her, the key to the problem is education. To ensure you’re properly equipped, we’ve put together eight pieces of advice that will help you reduce your debt.
The more you wait to pay off what you owe, the more debt you’ll contract. Since interests accumulate, the real cost of your purchases will only increase. Start paying off your debt now to avoid additional fees.
If your lifestyle is keeping you from at least making minimum payments on your debt, you need to revisit your habits. Take some time to think about ways to reduce your day-to-day expenses. Help yourself by taking note of everything you buy within a month, then highlight everything that can be modified. On top of keeping a close watch on your daily purchases, here’s a list of things you can consider to reduce your expenses:
According to Julie Pombert, to avoid debt, it’s better to stay away from “buy now, pay later” type of deals. Often, these promotions give buyers the impression that they have more money than they really do. Consumers therefore spend more than they can afford, simply adding to their debt.
The consequences of forgetting minimum payments on debt are much more severe than a simple increase of amounts owed. Repeatedly omitting to pay the minimum balance on your credit card can seriously harm your credit rating, meaning you might struggle to borrow again in the future.
Prioritize debt with high interest rates. This way, you’ll eliminate the debt that’s costing you more, thus reducing your global amount owed faster. Julie Pombert says that by doing this, you’ll regain your financial capacity, which means you’ll have more money to pay off the rest of your debt.
This one is simply a matter of motivation. With equal interest rates, you should put emphasis on your smallest debt. Seeing it disappear will encourage you to face bigger amounts. Plus, closing debt is great for your credit score.
A consolidation loan is granted by your financial institution to help you pay off the majority, if not the entirety, of your debt. Doing this centralizes the amount owed so as not to leave out any payments, but the main advantage is that the interest rate associated with consolidation is often lower than that of credit cards. But if you’re struggling to pay off debt, act fast; a poor credit rating will harm your chances of being approved for consolidation.
The best way to get a personalized debt management plan is to talk about it with a National Bank professional. Our advisors can help you set realistic objectives and achieve them as quickly as possible.
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